Value-based contracts

Evolving from fee-for-service to capitation

A number of national health plan executives recently commented that they feel the end of fee-for-service is in sight. On that prediction we agree. But I disagree with their prediction that value-based contracting will replace fee-for-service as the dominant form of reimbursement for healthcare providers. I disagree because value-based contracting is fundamentally unfair to providers. It creates an asymmetrical relationship in which the health plans hold all the cards and can manipulate the metrics to their own benefit. We can already see the evidence of this in the 250 some commercial ACO’s that have popped up around the country. And I disagree because there is a better substitute for fee-for-service, namely prepaid health plans with capitation. The healthcare industry has an abundance of experience over many decades, some over 50 years, with how to manage care under prepaid financial circumstances. The big advantage in moving to capitated reimbursement is that it eliminates the financial incentive for over utilization. Properly designed prepaid plans encourage physician cooperation and coordination of care. The structure of financial incentives eliminates the physician incentive to duplicate tests or imaging as a source of personal income. The structure of fee-for-service, even fee-for-service value-based incentives, is to encourage providers to do more, to bill more, to earn more. If we have learned anything since the creation of Medicare in 1965 it is that fee-for-service encourages more health care spending at the personal, corporate, state, and federal level of our economy. While health care reform is still built on a fee-for-service model, albeit with quality and process measures thrown in to steer providers in certain policy directions, I believe that the only hope of success in reforming healthcare will come from a move to capitation. Reforming the compensation model for providers is an essential ingredient in the reforms that are articulated as the Triple Aim for the Affordable Care Act. Those Aims are to improve the patient experience, to improve the health of populations, and to reduce the per capita cost of healthcare. Capitation is uniquely designed to address the per capita cost of healthcare. Combined with the new tools of population health management capitation can be successful in improving the health of populations by design. In our next blog guest Rich Williams from Advanced Plan for Health will explain how populations health management tools have made capitation an even more successful way to address clinical quality and health care costs. Share Tweet Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based...

Read More

Strategies for the future

Lately I have become keenly aware of an absence of strategic direction and a lack of awareness of current and future changes to healthcare delivery. I am perplexed by the call to action and direction that I see every day. I have come to the conclusion that while PPACA has fundamentally changed most of healthcare as we know it, reimbursement is still the same old, same old. My forecast is that as long as fee-for-service is the dominant methodology of payment, we will not see a great deal of true strategic change. I believe that the healthcare industry denial of this reality will ultimately be the downfall of many institutions and providers. Reimbursement methodologies must change because projected volumes and utilization trends will force both cost up and price down. Is your organization prepared strategically and operationally to lead during this change, or to follow and try to catch up? I believe that there are four strategic positions that every healthcare organization needs to consider, then operationalize within a significantly short time frame of 18 – 24 months. They are: The First Strategy is simple – Close the Back Door. Organizations have spent millions of dollars attempting to reduce costs and optimize service. With new reimbursement on the horizon, managing cost will remain critical. The second part of Closing the Back Door is evaluating your revenue sources to ensure that they are at levels that your organization can maintain, and margins that will weather the storms of healthcare reform. Most of the reimbursement shift of the future should be revenue neutral to prepaid services. The Second Strategy – Population Management. Develop methodologies that put the institution into the business of managing a population. In this new environment, you will be asked to manage the population’s behavior and quality of service to a lower cost. The last thing you want is a member in a bed utilizing high cost resources. Manage the population to healthier, less costly services. A tactic here would be to set up care teams that engage skilled providers for their quality using a vast array of sophisticated data analytics. The delivery system must be prepared. The Third Strategy – Consumerism. Two segments, Employers and Employee. Employers are beginning to require employees to take control of their own lifestyle decisions, and as such, writing benefit plans to motivate individuals that do not comply with Quality Standards, i.e., smoking, obesity, hypertension, and diabetes, to mention a few. The second part to Consumerism is that the employee, including spouse and dependents, must take an active role in managing their health and lifestyles making healthy decisions, and complying with management of their diseases. The Fourth Strategy – Reimbursement or the Retail Space. The reimbursement methodology will change and preparations are required for a number of tactics, but overall, you will take on the management of defined populations for a specific prepaid fee. Operationally, you will need a network of Care Teams, ability to establish a solid pre-existing cost for the historical services delivered for the defined population, and the predicted price of future care. I have outlined a number of strategic choices. As a leader ask yourself where you see healthcare going? What is your organization doing to prepare? And is your organization in denial or is it ready? Tweet Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group has been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based...

Read More

Narrow networks, good and bad

Over the past six months or so it has become increasingly obvious that private health plans are using the advent of Obamacare to limit their offerings to narrow networks. These networks are cheaper for the health plan and can be sold at competitive rates to employers, making them quite profitable to the plans. Increasingly this narrow network strategy is the preferred method of launching a product on the new Obamacare health insurance marketplaces. Tellingly, narrow networks systematically eliminate the high profile, high brand aware institutions that have historically demanded the highest rates from health plans. We’ve seen examples over and over again where health plans have offered to sign such institutions but for deep discounts. The leading institutions reject anything other than a token discount. This is a predictable theatrical exchange on both parties parts. Neither one really wants to enter into a relationship of this type. As a result the employer can offer insured employees a cheaper alternative based on the limited network of options of both physicians and hospitals to choose from. As health-care costs continue to grow, or at least are perceived to, employees welcome lower-cost alternatives even if it means less choice. The challenge of using a narrow network is obvious. Consumers have fewer physicians spread over unfamiliar geography and second-tier hospitals when they really need them. Narrow networks being sold in the new online marketplaces face even greater capacity pressure as actuaries project utilization rates among the newly insured will be 116% of those previously insured. Finding a doctor close to home or close to work in such narrow networks will become a major challenge in 2014. Would the narrow network strategy by health plans have happened anyway without the advent of Obamacare? Perhaps, but health care reform has given health plans a real jolt. They faced extinction and then severe limitations that were ultimately written into The Patient Protection and Affordable Care Act. It seems the narrow network is really a reaction to some of those limitations on their ability to pursue the traditional business model of health plans. But these are big, smart, resourceful organizations who have found a new way to survive in the new world of healthcare reform. Narrow networks are simply one of those tools to their survival. Tweet Author Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group had been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts that help sustain those organizations’ mission of improving the healthcare of the communities they...

Read More